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  • Matthew T. Dorius, Esq.

Carr Allison’s Comments to CMS on Proposed Rule Regarding Section 111 Penalties


As discussed in our previous articles, in February CMS issued a Proposed Rule on Section 111 penalties with a comment period ending April 20, 2020. We are extremely concerned that the Proposed Rule would allow for tremendous penalties to be imposed on Responsible Reporting Entities that are disproportionate to the noncompliance at issue and would be excessively burdensome. We submitted the comments below to CMS in response to the Proposed Rule. We are hopeful that CMS will withdraw the Proposed Rule and we will keep you updated on any developments. If you have any questions about the Proposed Rule, please let us know. Penalties That May Be Assessed Under the Proposed Rule Are Excessive and Disproportionate to the Actions for Which Penalties May Be Assessed The Eighth Amendment to the United States Constitution provides that “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” The U.S. Supreme Court has held that “a punitive forfeiture violates the Excessive Fines Clause [of the Eighth Amendment] if it is grossly disproportional to the gravity of a defendant’s offense.” U.S. v. Bajakajian, 524 U.S. 321, 334 (1998). When a “civil monetary penalty . . . is a fine, it falls within the protections of the Eighth Amendment.” Partee v. City of Marietta, No. 1:06-CV-2313-ODE, 2009 U.S. Dist. LEXIS 141584, *14 (N.D. Ga. Jan. 21, 2009). The Supreme Court recognized in Bajakajian that “at the time the Constitution was adopted, ‘the word ‘fine’ was understood to mean a payment to a sovereign as punishment for some offense.’” Bajakajian, 524 U.S. at 327 (quoting Browning-Ferris Industries of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257 (1989)). As the Supreme Court has explained, “a civil sanction that cannot fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either retributive or deterrent purposes, is punishment, as we have come to understand the term.” Austin v. U.S., 509 U.S. 602, 621 (1993) (quoting U.S. v. Halper, 490 U.S. 435, 448 (1989) (emphasis added)). The potential penalties under the Proposed Rule clearly cannot be said solely to serve a remedial purpose. The Proposed Rule provides that penalties of up to $1,000.00 per day (adjusted annually for inflation under 45 CFR part 102) per claimant may be assessed, even if the noncompliance at issue resulted in no harm or minimal harm to the Medicare program. The Proposed Rule does not indicate that the degree of harm to the Medicare program would be given any consideration at all. However, in order to ensure a penalty is not excessive within the meaning of the Excessive Fines Clause of the Eighth Amendment, it is essential to evaluate the gravity of harm caused by the noncompliance at issue. As the Supreme Court has recognized, “[t]he touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality: The amount of the forfeiture must bear some relationship to the gravity of the offense that it is designed to punish.” Bajakajian, 524 U.S. at 334. The economic impact of a fine on a defendant should be considered in determining whether the fine is excessive in violation of the Excessive Fines Clause. The First Circuit Court of Appeals has recognized that an “Excessive Fines inquiry runs deeper where a defendant raises the issue of deprivation of livelihood: ‘[A] court should also consider whether forfeiture would deprive the defendant of his or her livelihood.’” U.S. v. Fogg, 666 F.3d 13, 19 (1st Cir. 2011) (quoting U.S. v. Levesque, 546 F.3d 78 (1st Cir. 2008)). Even if a fine is not “grossly disproportional to the gravity of the defendant’s offense,” Bajakajian, 524 U.S. at 337, it violates the Eighth Amendment if it is “so onerous as to deprive a defendant of his or her ability to earn a living.” Fogg, 666 F.3d at 20 (quoting Levesque, 546 F.3d at 85). The Proposed Rule does not give any consideration to the economic impact on a defendant. A penalty of up to $1,000.00 per day (adjusted annually for inflation under 45 CFR part 102) per claimant could have an extremely significant impact on any entity and potentially result in a Responsible Reporting Entity becoming insolvent. As a result of the current COVID-19 pandemic, many businesses are facing tremendous financial struggles. In no case during the COVID-19 pandemic or at any point in the future should penalties be imposed that would result in a business laying off workers, declaring bankruptcy, or being otherwise unable to continue its routine business operations. The Proposed Rule also does not provide that any consideration will be given to whether a Responsible Reporting Entity was aware of its reporting obligations with regard to the noncompliance at issue. The Ninth Circuit Court of Appeals has recognized that “it is the individual culpability of a claimant—i.e., the person who is actually punished by the ‘fine’—which must be considered in the excessiveness analysis.” U.S. v. Ferro, 681 F.3d 1105, 1116 (9th Cir. 2012). An individual or entity engaged in a business, trade, or profession would be considered a Responsible Reporting Entity required to comply with Section 111 NGHP reporting requirements if the individual or entity acts without regard to their insurance or does not carry insurance. Many such individuals and entities may be entirely unaware of their reporting obligations. Additionally, Section 111 reporting obligations regarding certain issues can be confusing or unclear. In situations when Section 111 reporting requirements are unclear, penalties should not be imposed for noncompliance based on a Responsible Reporting Entity’s good faith interpretation of Section 111 reporting requirements. We request that CMS withdraw the Proposed Rule as it allows for penalties that are “grossly disproportional to the gravity of a defendant’s offense,” Bajakajian, 524 U.S. at 334 and it does not take into account the degree of harm caused by a defendant’s noncompliance, the economic impact on a defendant, or the defendant’s culpability with regard to the noncompliance at issue. Any Final Rule should be more narrowly tailored to ensure that penalties are not imposed in violation of the Excessive Fines Clause of the Eighth Amendment. CMS should incorporate factors discussed in 42 C.F.R. § 402.111 providing for the mitigation of any penalties and should limit any penalties based on the degree of harm caused by the noncompliance at issue, the economic impact on the defendant, and the defendant’s degree of culpability. Penalties for Failure to Timely Report The Proposed Rule provides that penalties would be assessed against a Responsible Reporting Entity that “fails to report any beneficiary record within 1 year from the date of the settlement, judgment, award, or other payment.” Under the Proposed Rule, penalties would be assessed without regard to whether Medicare’s conditional payment claims were resolved and without regard to the amount of conditional payment claims at issue. Penalties should not be assessed in cases when Medicare’s conditional payment claims have already been resolved and the amount of penalties in any case should not exceed the amount of conditional payment claims. Penalties should not be assessed in cases when Medicare has not made any conditional payments, particularly in cases when no injury has been alleged. Further, CMS should waive penalties for a period of at least one year in order to encourage Responsible Reporting Entities to correct previous reporting mistakes and report any claims that inadvertently may not have been reported. Penalties for Contradicting Reporting in Response to Recovery Efforts If a Responsible Reporting Entity reports information mistakenly that results in CMS seeking recovery for unrelated claims, the extent to which CMS has been harmed is minimal. If a Responsible Reporting Entity contradicts information it has reported under Section 111 when submitting a dispute, in no event should the amount of penalties assessed exceed the amount of claims disputed. Further, CMS should not in the same case deny the dispute based on the information reported under Section 111 and assert penalties based on the information received in response to the recovery efforts. Penalties should also not be assessed when a third party and not the Responsible Reporting Entity itself has submitted information in response to CMS’s recovery efforts that contradicts information reported by the Responsible Reporting Entity. Files That Exceed Error Tolerance Threshold Under the Proposed Rule, penalties would be assessed against a Responsible Reporting Entity that “[h]as reported, and exceeds any error tolerance(s) threshold established by the Secretary (not to exceed 20 percent) in any 4 out of 8 (or less) consecutive reporting periods.” The Proposed Rule provides for a tiered approach for penalties that may be imposed if a Responsible Reporting Entity exceeds the 20 percent error threshold in 4 out of 8 consecutive reporting periods. The initial penalty would be 25 percent of the maximum penalty per beneficiary per calendar day of non-compliance after the last calendar day of the Responsible Reporting Entity’s quarterly reporting period, based on the number of beneficiaries whose records exceeded the 20 percent error threshold. For each subsequent penalty, the penalty would be increased by 25 percent of the maximum penalty. If the applicable plan reports after penalties are assessed and does not exceed the 20 percent error threshold, the next potential penalty would be reduced by 25 percent of the maximum penalty. Chapter IV, Section 7.3.2 of the CMS NGHP User Guide provides that if a file is submitted that exceeds the 20 percent error threshold, processing of the file will be suspended and the EDI Representative will notify the RRE Account Manager. The Account Manager may request that the EDI Representative release the file for processing or delete the file and the RRE would resubmit a corrected file. Penalties should not be imposed if the file is deleted and the RRE submits a corrected file. Further, the 20 percent error threshold should not be applied when an RRE submits 5 or fewer claims in one file, as in such files the 20 percent error threshold currently would be triggered by a typographical error in one of the data fields for any individual claim. The 20 percent error threshold should also only be triggered based on errors in specific fields that are material to CMS claim processing (CMS Date of Incident, ICD Diagnosis Codes when no valid code is reported, Plan Insurance Type, ORM Indicator, TPOC Amount, and TPOC Date). Any Final Rule Should Be Delayed Until After the COVID-19 National Emergency Has Ended Given the significant burdens faced by Responsible Reporting Entities with the COVID-19 national emergency, CMS should delay any Final Rule until after the COVID-19 national emergency has ended. Further, CMS should consider additional comments that may be submitted after the April 20, 2020, deadline as some Responsible Reporting Entities and other interested parties may not have had sufficient time to prepare comments in light of disruptions to their business operations from the COVID-19 pandemic.

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